All 38 Variance Analysis questions
More in Variance Analysis
What does an adverse sales price variance indicate? What is a favorable variance a warning sign of sometimes? What is the difference between a budget and a standard? What are the two components of the direct materials variance? How is the variable overhead variance analyzed? What are the sales variances (price and volume)? How do variances reconcile budgeted profit to actual profit (an operating statement)? How do you decide which variances to investigate? What are the possible causes of an adverse material usage variance? What are the possible causes of an adverse labor efficiency variance?
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Budgeting & Forecasting › Variance Analysis

What are the two components of the direct labor variance?

Intermediate

Answer

The total direct labor variance splits into the labor rate variance—(standard rate - actual rate) x actual hours paid—and the labor efficiency variance—(standard hours for actual output - actual hours) x standard rate. Rate reflects wage levels; efficiency reflects productivity of the hours worked.
Rate = (SR - AR) x AH.  Efficiency = (SH - AH) x SR.
Real-world example Paying overtime premium causes an adverse rate variance; slow work causes an adverse efficiency variance.

Common follow-ups: Which variance reflects the wage rate? | Which reflects productivity?

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All 38 Variance Analysis questions